Larry Gagosian raised a lot of eyebrows when he admitted in a recent court deposition that he didn't worry much about “loyalty” to his clients because he often played both sides of the fence: “As a matter of practice, art dealers frequently represent the buyer and the seller,” he said. “I just don’t think about it in terms of — in those terms. I think about, 'It’s a financial transaction, and the seller wants to get paid.’ My objective is to pay the seller and to make a profit for the gallery.”

But that brute-capitalist ethos may not always serve him well, at least in light of a recent U.S. District Court defeat, which is a major setback in his gallery’s lawsuit against former client Charles Cowles — a case that has largely gone under the radar.

It was widely publicized that Gagosian paid British collector Robert Wylde $4.4 million in 2011 to settle a lawsuit over the sale of Mark Tansey's painting “The Innocent Eye Test.” Wylde had bought the painting for $2.5 million two years earlier, only to discover that the man who had consigned the work to Gagosian, Charles Cowles, didn't actually own it. Rather, it belonged jointly to his mother, Jan Cowles, and the Metropolitan Museum of Art, and it had to be returned immediately.

But what many people didn’t notice is that, after the settlement, Gagosian turned around and went after his co-defendant, Cowles, in hopes of recouping some of his losses. (It’s a complex legal maneuver but, basically, Wylde transferred his pre-packaged lawsuit against Cowles to Gagosian as part of their settlement deal.) If Gagosian could prove to the court that Cowles was also to blame for the botched Tansey sale, shouldn’t the man then be responsible for some of the damages as well?

Not according to a 44-page court finding issued on Friday. In order to demonstrate Cowles’s liability, Gagosian had to prove that the two men worked together in an official consignor-agent capacity. That seems easy enough, except it looks like Gagosian attempted to work two sides of the deal, and this time it backfired. See, Cowles had hit financial hardship and his reputation may have made him an unattractive seller, so the gallery downplayed his involvement in its sales pitch to Wylde, according to court papers. In fact, Wylde argued that the gallery “explicitly” stated that it did not work on Cowles’s behalf — his name wasn't listed on the invoice and, in an email to Wylde, Larry Gagosian himself was said to be in charge of the painting's pricing.

In the end, Gagosian couldn’t prove to the magistrate judge that he legally represented Cowles in the sale, and therefore Cowles isn’t likely to be held responsible for any of the damages. Plus, the court papers note that New York State law requires that a party seeking this type of compensation, known as indemnification, must be 100-percent fault-free themselves, which would likely be a tough sell for Gagosian in this case.

“[W]e believe that the potential strength of Mr. Cowles's legal defenses outweighs the relatively moderate level of fault,” wrote judge Michael Dolinger in his recommendation to the district court, which will soon make its final decision, pending any objections from Gagosian or Cowles in the next two weeks. Representatives for the gallery could not be reached for comment.

It may seem surprising that Cowles appears to be getting off the hook, especially considering his admissions of fault in the past. But he is facing a few minor repercussions: after missing several deadlines and hearings, the court has recommended that he pay a portion of Gagosian’s legal fees. It also issued him a stern warning: “[S]hould Mr. Cowles resume his prior pattern of non-engagement going forward in this case, our assessment of any potential future motion for a default judgment would likely be very different.”